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Option Premium The price one pays to buy an option contractwhether it is a call or a putwhen one is the first buyer. That is, when the option is written, its first buyer pays the option premium. It should not be confused it with the strike pricewhich is the price one would pay for the underlying asset, options signals reviews the option be exercised.
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Farlex Financial Dictionary. All Rights Reserved option premium See option premium payment. Published by Houghton Mifflin Company.
An option premium is the current market price of an option contract.
All rights reserved. Option premium.
When you buy an option, you pay the seller a nonrefundable amount, known as the option premium, for the right to exercise that option before it expires. If you sell an option, you receive a premium from the buyer.
In fact, collecting the premium is often one motive for selling options, including those you anticipate will expire without being exercised. An option premium is not a fixed amount, and typically increases as the option moves in-the-money and decreases if it doesn't move in-the-money.
However, factors such as the price and volatility of the underlying instrument, current interest rates, and the amount of time left before the option expires also affect the premium price. You can look at the current range of premium prices in the Options Quotations tables in newspapers or on options websites, such as the Options Clearing Corporation OCC website.
Dictionary of Financial Terms.
By Daniel Kurt Updated May 9, Investors love options because they improve many market strategies. Think a stock is going to rise?
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- Premiums are quoted on a per-share basis because most option contracts represent shares of the underlying stock.
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